Econ 201 1st Edition Lecture 39Outline of Last Lecture 1.Barriers to Entry that Preserve Monopoly Status2.Market Structure and Its MeasuresOutline of Current Lecture 1.Revenue Concepts for Monopoly 2.Marginal Revenue and Linear DemandCurrent LectureRevenue Concepts for Monopoly• Total, Average and Marginal: TR, AR, MR• Total Revenue: TR = P × Q– P = prevailing price in market– Q = output from monopolist = market quantity supplied• Average Revenue: AR = TR / Q = P• Marginal Revenue: MR = ΔTR ⁄ ΔQ• Analysis of MR:– ΔQ è ΔTR = Δ(P × Q) = P × ΔQ + ΔP × Q– Divide by ΔQ è ΔTR ⁄ ΔQ = (P × ΔQ) ⁄ ΔQ + (ΔP × Q) ⁄ ΔQ – Substitute and simplify: MR = P + (ΔP⁄ ΔQ) × QThese notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.Marginal Revenue and Linear Demand• Definition of MR: MR = P + (ΔP ⁄ ΔQ) × QΔP ⁄ ΔQ = slope of Demand, which is negative. Thus MR < P.• Let Demand be: P = a – bQèSlope = – b• Substitute into MR expression: MR = a – bQ – bQ= a – 2bQ MR is straight line with same intercept but twice as steep as Demand. TR is quadratic function: TR = P×Q = (a – bQ) ×Q = aQ –
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